Medicare spending could be cut if physicians were rewarded for better health outcomes, not sheer volume of care, experts agree

BMJ 2013; 346 doi: (Published 22 March 2013) Cite this as: BMJ 2013;346:f1906
  1. Bob Roehr
  1. 1Washington, DC

The time is right to deal with the so called “doc fix”­—the annual ritual of deferring cuts in Medicare payments to physicians—experts told a congressional briefing on 15 February.

But they were unclear as to how that might be achieved. Most believe that it must be part of a shift in reimbursement that rewards value and improved clinical outcomes.

The Medicare sustainable growth rate formula was enacted in 1997 as an attempt to rein in the volume and intensity of services and payments to physicians. It limited the increase in this area of spending to the overall rate of growth of the economy.

But after just one year of applying the formula, the howls of protest were so great that Congress deferred its implementation—the “doc fix”—every year since.

The problem is that the savings dictated by the formula have continued to accrue, at least on paper, to the point where projected payments would have to be cut by 25% in 2014 if the formula was applied as the law requires.

Stuart Guterman, a health economist with the Commonwealth Fund, a private foundation that works toward a high performing health system, said that two factors created hope that the issue might be resolved. One is a recalculation by the Congressional Budget Office that it would cost “only” $138bn (£90bn; €108bn) over 10 years to resolve the issue.

That is down from an estimate of $316bn made in January 2012. The decrease is largely because total health spending has grown much more slowly over the past three years,1 though no one is quite sure why spending has slowed.

The other factor is what looks to be an increasing shift away from reimbursement of fees for services to some form of bundled payments. Guterman helped write a report that projected how this would help achieve greater value in healthcare while reducing costs.2 3

Congress has come to think of it as a growth rate problem, but “it really is a physician payment challenge,” said Gail R Wilensky, a former administrator of the Medicare and Medicaid programs. The sustainable growth rate formula and the system of fees for services are largely based on the idea that more volume equates to a better service for the patient. She said that the shift must be to rewarding better health outcomes, not sheer volume of care.

She hopes that some of the Medicare demonstration projects and private sector initiatives away from fee for service reimbursement will point the way to how to achieve this. But many of those outcomes will not be known until 2014 or beyond.

“Fee for service is not inevitably as dysfunctional as ours [in the US] has proved to be,” argued Robert Berenson, of the Urban Institute, a think tank in Washington, DC. Rather, the bigger problem is the fragmentation and silos of care that characterize too much of US medicine.

Tinkering with service payment rates has been a good way to influence providers behavior, he said, and he pointed to examples such as increased rates of vaccination when reimbursement was increased.

Berenson believes that the biggest challenge will be in rebalancing resources between primary and specialty care so that high value care is delivered in the appropriate setting.

Guterman believes that the integration of healthcare providers, often through the financial power of a hospital system, can help to rationalize the appropriate delivery of care. But he also acknowledges the potential for monopolistic practices.


Cite this as: BMJ 2013;346:f1906